Financial liberalization and aggregate consumption: the evidence from Taiwan

Vei-Lin Chan and Sheng-Cheng Hu

Applied Economics, 1997, vol. 29, issue 11, 1525-1535

Abstract: This paper considers the effect of financial liberalization on aggregate consumption, with a special focus on Taiwan, which has sustained a high savings rate and a rapid rate of economic growth under financial dualism, but has undertaken financial liberalization since the 1980s, leading to an expansion of the formal financial sector. The paper finds that, because of an active informal financial sector, consumers in Taiwan are less credit constrained than in other developing countries. However, the expansion of the formal financial sector has contributed to some relaxation of consumer credit constraints and thereby changes in the income and interest elasticities of consumption. It also has brought about a higher consumption growth rate, offsetting at least partially the positive growth effect of financial liberalization, which helps improve the efficiency in finanacial intermediation.

Date: 1997
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DOI: 10.1080/000368497326354

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